Media Report: Granite beats revised estimates -- 04-20-98

CBS.MarketWatch.com

NEW YORK (CBS.MW) -- Shares of minority-owned Granite Broadcasting (GBTVK)
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gained 1/4 to 11 3/4 on news it reported a first-quarter loss of $1.06 a share, besting revised Wall Street forecasts of a $1.14 deficit. The company lost $1.09 a year ago.

In a press release, Chairman and CEO Don Cornwell said the improved results reflect strong Winter Olympics ratings on its three CBS affiliates, along with a 30 percent increase in advertising spending at WDWB-TV, its Detroit WB affiliate.

Cornwell noted that the improved ratings on the CBS stations did not significantly cannibalize the results on its three NBC stations or its four ABC affiliates. Altogether, the 11 stations Granite owns are "well positioned for the balance of the year," Cornwell said.

Second-quarter advertising momentum looks "strong," said Cornwell, and revenue growth should increase heading into the political advertising season. The company plans to make a number of investments to upgrade WDWB-TV, and is on target to close the $174 million buy of San Francisco WB station KOFY-TV during the third quarter, Cornwell said. That transaction is still subject to FCC approval because Granite owns KNTV-TV, an ABC affiliate in nearby San Jose, Calif., and must either obtain a waiver or divest the other station.

If the FCC waives its duopoly regulation and approves Granite's buy of KOFY-TV, the company will have stations in two of the top ten television markets. San Francisco is the No. 5 market, while Detroit is No. 8.

The minority-owned company sold two of its Michigan stations, CBS affiliate WWMT-TV and ABC affiliate WLAJ-TV, for $170 million in February 1998, Proceeds from the sales were used to help fund the KOFY purchase.

Privately held Chronicle Publishing Co., publisher of the San Francisco Chronicle and Examiner, and owner of San Francisco NBC affiliate KRON-TV, has filed an objection to Granite's plans. But CS First Boston analyst Harry DeMott said the deal will probably go through.

"I think there's definitely a move afoot to do more for minority broadcasters," DeMott said.

First Union Capital analyst Bishop Cheen agreed. He pointed out that the FCC and the Department of Justice allowed Sinclair Broadcasting (SBGI)
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to enter into a Limited Management Agreement to operate Columbus, Ohio ABC station WSYX-TV last week, though it already owns Fox/UPN affiliate WTTE-TV.

"So you have to say," said Cheen, "that San Francisco is a much larger market, where a doubling up would have an even lesser impact, let's say than in a smaller pool [like Columbus.]"

Cheen said Granite has to be viewed on a more long-term basis, not from quarter to quarter. He pointed out that the company has been on a "building program" for four to five years, investing in strong local news operations and infusing floundering stations with new management. "This is the first year where, in the back half [of 1998], we may see the harvest of some of the seeds they've been planting," he said.

DeMott has a "buy" rating on Granite stock, noting that it is trading at a discount to its peers because it hasn't grown as quickly as its rivals have.

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